Medicare and the Cliff Negotiations

November 27th, 2012 at 9:55 pm

Update: My colleague and knowledge font re all things social insurance, Paul Van de Water, reminds me of a piece he wrote about this issue a few weeks back. Along with many of the points below, he adds that “state Medicaid costs would rise, as some of the people who lost Medicare coverage would shift to Medicaid.” Check it out.

There’s a useful piece in the WSJ this AM on some of the costs and benefits of one the entitlement cuts that has been raised in fiscal cliff discussions: raising the Medicare eligibility age from 65 to 67.

The savings, according to the piece, amount to about $150 billion over ten years. But you’ve got to net out a number of costs against that figure.

–Some seniors will work longer—that’s already occurring, of course—and remain on their employer’s plan. Since older workers are relatively more expensive to insure, this will push up employers’ costs of coverage.

–A new source of coverage for 65-66 year-olds will be the health care exchanges set up by the Affordable Care Act in 2014. But there’s a cost here too—coverage for family members with incomes up to 400% of poverty (around $90,000 for a family of four) includes a government subsidy.

–Since the exchanges must cover these older persons at “community rates,” their move from Medicare to private insurance means private prices in the exchanges will vary less by age than they do now. According to a Kaiser Family Foundation study, that will drive up premiums for everyone in those exchanges by 3% (for young adults, by 8%).

–Some 65-66’ers will be uninsured which raises the incidence and costs of uncompensated care.

The piece leaves out an important point that should also be noted in these discussions about raising the retirement or eligibility age for social insurance: while older persons are living longer on average, there’s a significant gradient by income, with life expectancy up only slightly among older men in the bottom half of the income scale. Unfortunately, healthy, wealthy, aging policymakers often take themselves to be the sole reference people here…they are not.

So does this mean Medicare savings shouldn’t be on the fiscal cliff bargaining table? No, though I wouldn’t fool around with the eligibility age. The President offers up about $280 billion (over 10 years) of cuts in his budget, including modified payments to providers, cost sharing with higher income beneficiaries, and lower drug costs in Medicare Part D. That’s a fine place to start.

And a fine place to stop, for now. The real savings in health care will come from cost control measures enacted in the Affordable Care Act but nowhere near fully implemented, and it’s just too soon to know if they’re working. We must give them a chance—early indicators are positive, though they may be conflated with recession-induced (i.e., temporary) dips in demand. If they fail to control costs, then it’s back to the drawing board. But now’s the time to watch and evaluate, not to reduce access to what is a highly efficient, effective form of health coverage for the nation’s seniors.

10 comments in reply to "Medicare and the Cliff Negotiations"

>>The savings, according to the piece, amount to about $150 billion over ten years>>

This is misleading. The Federal government might save some (although this is not clear, given other possible increases). However, costs to seniors would rise, likely by more than the “savings” to the Feds (because Medicare is more efficient than the major alternatives).

In other words, healthcare costs would increase and seniors, rather than the government, would have to bear those costs. At some point, the vast majority of us will be seniors, so the vast majority of us will suffer as a result. Who benefits? Very high income taxpayers who hope to see lower rates, as healthcare costs are a very small percentage of their income.

By the way, on the oft heard notion of Medicare going broke – if so, then we all go broke, because we can’t afford healthcare, or we suffer from lack of needed care. Whether we fund Medicare is a question of who suffers.

As the used to say, cui bono is usually the best way to analyze these issues.

The conclusion? Raising the Medicare age, or otherwise decreasing benefits, hurts almost all, but benefits those with the highest incomes.

Agree with your post and would add that while many Americans are “living longer”, many are living on life support, in dementia wards and as cripples. Not everyone has a staff to care for them, drivers to take them to parties, and all the money in the world for healthcare.

The very dirty secret is that “living longer” often means confinement in a nursing home, staying in a bed with a half dozen other elderly in the same crowded room, and paying $70,000 plus a year – not covered by the very Medicare under discussion. After you pay the “home” all your savings, Medicaid kicks in and you are more or less a ward of the state and at the bottom of the healthcare barrel.

Only in America can they take away every dime (down to about two grand), steal any money you gave as gifts in the prior five years, and then proclaim we have “the finest healthcare system in the world.”

The problem with the health care costs is that no one in the system has any incentive to reduce costs. The patient doesn’t pay the full price (or even a fixed percentage) of the cost of medicine, so doesn’t give a damn about the price; the doctor and hospital get paid more for offering increased services, so have negative incentive to reduce costs; and the insurance companies get paid based on a percentage of the medical costs they run through the system so also have a negative incentive to control costs. Changing the behavior of the doctors/hospitals or insurance companies is extremely unlikely, they are all for-profit entities and will absolutely use that profit to protect their wallets. In my analysis, the _only_ way to get the required changes in the system are for users to pay for their medical costs. Since this is also essentially impossible, I don’t see any way for our current paradigm to change, let alone reducing costs. It is politically infeasible to go with the single payer government managed system (thus putting the entire health insurance out of business) which is the only realistic way of reducing costs absent a change in consumer behavior, so I don’t see any path forward.

Keep in mind, the huge excess our society pays for health care (some 30% based on my reading) is acting as a massive ‘stimulus’ to our economy and those trillions being sucked out would no doubt crash us into a deep depression. No different from the ‘stimulus’ that the military/industrial complex has on our economy.

Medicare for all would be the greatest stimulus to the economy. It would relieve the burden on many businesses and guarantee healthcare, regardless of your employer or personal wealth. Investors in insurance companies would probably be the only ones who would suffer from such a change.

Raising the Medicare age would make nearly everyone suffer, except insurance companies, because they gain new customers, seniors at high rates.

“while older persons are living longer on average, there’s a significant gradient by income, with life expectancy up only slightly among older men in the bottom half of the income scale.”

But what is the *conditional* life expectancy (which is what you really care about for purposes of forming policy on retirement age)? That is, how many years of further life expectancy does each cohort (high income vs low income) enjoy *assuming* they actually reach age 65?

I would wager that this gradient between income brackets is much smaller, given the many other factors (infant mortality, homicide rates, etc.) that could explain lower *average* life expectancy for lower incomes.

The irony of the idea to raise the eligiblity age for Medicare is that we should be doing exactly the opposite. Let more/younger people into Medicare.

It struck me sometime back that the real push to start doing health insurance reform came — not when the Boomers hit Medicare (and would no longer have to worry about coverage!) — but when they hit middle age (50-something) and the cost of insurance to themselves personally, or to their employers, started getting really hefty!

Now with the Great Recession, and many of those 50-somethings losing jobs and/or jobs with health benefits, it would be good for them AND the system to let them buy into Medicare. Their “premium” could be that 8% (of whatever they may be earning) that is the threshold level for subsidies in the exchanges.

At middle-age, without insurance, one is likely to forego much of that preventive stuff, just when a lot of the chronic problems (like heart disease or diabetes) kick in and could be quite manageable, cost-effectively, at this earlier age. They’ll try to stick it out till Medicare, and be much sicker when they get there.

It’s always perplexed me that the government covers all the greatest at-risk populations — the elderly, the poor, and the military. But when trying to save costs, govt. decides to cut those expenses, rather than thinking like an insurance company, and going after younger, healthier people to join the Medicare risk pool.

Oh, but yeah. Can’t do that. That would mean a public option, or, heaven forbid, single payer.

Both the post’s author and one of the commenters claims Medicare is effective and efficient. Help me out here. How is a system that requires seniors to deal with three to five insurance companies efficient? How is a system with 30% waste effective? How is a system that unsuccessfully fixes provider prices for 15 years either?

Expanding the “Medicare Part D” savings: allow the Government to negotiate prices. Just that: a market solution!

Oh, well, yes, it’d also be absolutely anathema to those on the Right wing of the negotiating table, but all in all they’ll probably prefer not to publicly defend rejecting that in favor of cutting people off.